How Are UK Salaries Paid? The PAYE, National Insurance and Pension Process

Start with the conclusion: every pay run has to close one chain of evidence

A company that already employs people in the UK should open every payroll cycle by freezing its inputs, and close it with three reconciliations: the actual bank payment against the payroll register; the FPS and EPS against the HMRC PAYE bill; and the employee payslips and pension contribution files against what the scheme received. The bank transfer is one action inside that sequence. It does not stand in for reporting, deductions or contributions.

The main PAYE, Class 1 National Insurance and workplace pension process covers the whole UK, but Income Tax is not a single rate a founder can work out by hand. HMRC's payroll software rules calculate it from each employee's tax code; a code prefixed with S usually indicates Scottish rates and C Welsh rates. The employer should load the code HMRC issues into the software rather than rewriting it because of a work location, an accent or where the company is registered. HMRC: what the letters in a tax code mean Employer and employee NIC for 2026/27 also vary by category letter, pay frequency and special status, and the official rates page expressly requires payroll software to do the calculation. A budget percentage is not a reportable figure. HMRC: rates and thresholds for employers 2026/27

This guide assumes the company is already running normal payroll. It does not repeat 000054 on first hires or the PAYE registration entry point, does not repeat 000057 on total annual cost, and does not replace the contract or termination analysis in 000058. Director pay, once-a-year or irregular payments, cross-border services, agencies and special statuses appear only at the end as stop conditions that divert the case; once the facts cannot be explained by standard payroll, pause payment approval first.

Before the pay period, separate three kinds of dates and two kinds of input

Write five dates into the internal calendar first: the document cut-off, the usual payday, the bank release date, the FPS payment date, and the payment deadlines for HMRC and the pension scheme. The FPS should carry the actual usual payment date; if the company pays early because of a holiday, the date the software ran must not be passed off as the payment date. HMRC: reporting to HMRC (FPS) Weekly and monthly payroll both send an FPS for each payment date, and the tax month still follows HMRC's 6th-to-5th cycle rather than the feel of a calendar month.

Putting all five dates on one cycle card prevents the situation where the run finishes today and the reporting deadline turns out to have passed last week. The document cut-off decides which changes enter this period; the usual payday sets the FPS payment date; the bank release date decides when employees receive net pay; the HMRC receipt date decides whether the PAYE bill is settled on time; and the pension scheme date decides when deductions actually reach member accounts. Where the five dates conflict, adjust the internal cut-off or escalate the approval first. Do not reinterpret an external deadline to fit. Each date should also carry its time zone, owner, backup contact and the location of the success evidence. When a finance team in Hong Kong, the United States or another region is involved, keep UK bank holidays separate from local working days in writing, so that "head office has released the funds" is not mistaken for "the UK employee was paid on payday".

The first kind of input is people and master data: new starters, leavers, rehires, pay changes, work location, director flags, tax codes, National Insurance categories, student loans and any other notice received. A new employee's name, leaving date, cumulative pay and tax for the year, National Insurance number and current tax code usually come from a P45. Where there is no recent P45, or the document is incomplete, the employee should complete a Starter Checklist rather than have the employer guess from a previous payslip. HMRC: new employee information

The second kind of input is the gross pay for this period: fixed salary or hourly pay, approved hours, overtime, commission, bonus, arrears, sick pay or other statutory pay, and any leave or leaving event that affects this run. Each item needs a source, an owner and an approval date. The official make-up of qualifying earnings for pension purposes can include salary, wages, commission, bonus, overtime and several kinds of statutory pay, so "the monthly salary has not changed" does not mean the pension input for the period has not changed. Do not push expenses, benefits, equity or a termination award into ordinary pay lines by default; they may follow a different PAYE, Class 1A, P11D or professional-review route.

The closing board also has to separate an acceptable difference from an unexplained one. A tiny rounding difference can sit under a threshold set in policy, with the calculation kept on file. An unexplained difference in employee net pay, HMRC liability or a pension contribution is a blocker in every case. At the end of each period, the owner should leave the completion date, exception number and final decision maker on the control board even when the conclusion is "no correction needed", so that whoever picks up the next cycle can follow the chain of facts rather than someone's memory.

Original tool: a nine-step closing board for the UK payroll cycle

This closing board is an internal control tool for the company. It is not a government form from HMRC, The Pensions Regulator or a bank. Each step sets out the owner, input, deadline, official evidence and stop condition. The owner can be internal or a qualified payroll provider acting on the company's behalf, but the employer still has to keep evidence it can read back.

Step 1: freeze the people master file and the period's events

• Owner: collected by the payroll lead, confirmed by the operations owner, with the change summary seen by the finance owner.
• Input: the employee list for the period, starters and leavers, pay or hours changes, location, director status, irregular payments, cross-border or agency flags.
• Deadline: an internal cut-off, suggested several working days before the usual payday. This is a management buffer, not a uniform number of days set by HMRC.
• Official evidence: the approved change list, source documents, entry dates and last period's variance report.
• Stop condition: stop when it is unclear whether someone is an employee, a worker, a director, a contractor or a cross-border service provider, or when the nature of the payment may be a special item. Do not run them through ordinary payroll; route the case to employment, tax or immigration specialists.

Step 2: lock hours and gross pay

• Owner: the line manager approves hours and variable items, the payroll lead checks them, and the finance owner approves exceptions.
• Input: timesheets, rosters, fixed salary, overtime, commission, bonus, arrears, leave and any applicable statutory pay.
• Deadline: the internal input cut-off. Anything added after it needs a recorded reason and two-person approval.
• Official evidence: a gross pay register listed by employee, hours evidence, approval records and an exception list.
• Stop condition: do not release the calculation when hours are unapproved, when pay does not match the contract or the actual arrangement, when the National Minimum Wage may be affected, or when the tax treatment of a bonus or commission is unconfirmed. A salary benchmark is not a substitute for this step.

Step 3: check the P45, Starter Checklist, tax code and NIC category

• Owner: entered by the payroll preparer, matched against the original documents by the payroll reviewer.
• Input: a P45 or Starter Checklist, tax code notices such as P6/P9 from HMRC, the National Insurance number, the employee's age and any other fact that triggers a category letter.
• Deadline: before the calculation runs. A new employee has to be set up in the document chain of the first payment; paying first and filing afterwards is not acceptable.
• Official evidence: source documents, the values entered in the software, the person who entered them and the person who reviewed them. An S or C tax code cannot be guessed from a location, and a NIC category is not the employee's choice.
• Stop condition: pause the preview when the P45 and the Starter Checklist conflict, when a tax code has expired, when the National Insurance category is unclear, or when letters such as A, M, H or C are treated as options that can be edited freely. HMRC explains that the employer uses the category letter to calculate both employee and employer NIC, and the letter follows employee facts rather than a cost target. HMRC: NIC category letters

Step 4: run PAYE, employee NIC and employer NIC

• Owner: the payroll preparer runs the software; a finance or external payroll reviewer checks the exceptions.
• Input: the frozen gross pay, tax codes, NIC categories, pay frequency, year-to-date data, student loans and other confirmed deductions.
• Deadline: complete a draft run before payment, leaving time for corrections and two-person approval.
• Official evidence: the software version or current tax-table status, the payroll register, employee deductions, employer NIC, year-to-date reports and the variance report. The 2026/27 official page, for example, lists the employee NIC bands for ordinary Category A, the secondary threshold and the employer rate. Those figures are there to test whether the software output follows a sensible path; a hand calculation off to the side must not override the software.
• Stop condition: do not move to payment when a manual override in the software has no reason, when employee NIC does not match the category, when employer NIC has been treated as an employee deduction, or when the gross-to-net bridge does not work. PAYE is Income Tax and employee NIC withheld from the employee's pay; employer NIC is a separate liability of the company and must not be deducted again from net pay. HMRC: rates and thresholds for employers 2026/27

Step 5: complete the pension assessment and route postponement or opt-out

• Owner: the payroll lead runs the earnings and age assessment; the pension owner maintains the scheme and provider files.
• Input: age, taxable earnings, pay frequency, qualifying earnings, enrolment or opt-out status, scheme rules and employee notices.
• Deadline: assess new employees and earnings changes on every run. The 2026/27 automatic-enrolment earnings trigger is £10,000 a year, with a qualifying earnings band of £6,240 to £50,270, which on a monthly basis is £833 and £520 to £4,189. TPR: 2026/27 earnings thresholds
• Official evidence: the assessment output, the enrolment or joining letter, the provider member file, the postponement notice, the opt-out notice and the contribution input. Postponement can push the duty out by around three months at most, but written notice must be issued under the rules; it is not a permanent exemption. TPR: postponement
• Stop condition: stop deductions and communications when there is no suitable qualifying scheme, when the assessment date was not recorded, when an employee asks to opt out before becoming an active member, or when a manager hints that staying in will affect the job. An employee can only opt out within one month after becoming an active member, and only a compliant notice triggers a refund. An employer must not induce anyone to leave. TPR: opting out

Step 6: two-person review, then the bank payment

• Owner: the finance owner prepares the payment file and a director or authorised approver approves it independently. The payroll lead should not build the file, change the figures and release the funds alone.
• Input: the final payroll register, the gross-to-net bridge, employee bank details, net pay, pension deductions, the change summary and the exception list.
• Deadline: completed before the bank release. Payslips must be provided on or before payday.
• Official evidence: the two-person approval record, the successful bank receipt, the match between the payment total and the payroll register, and the record of payslips issued to employees. A payslip has to show gross pay, any deductions that vary (such as tax and National Insurance) and net pay; where pay varies with hours, it also has to show hours worked. GOV.UK: payslip requirements
• Stop condition: withdraw the payment and repeat the review when the bank total does not match the sum of net pay, when an employee has no payslip, when variable hours are missing, or when the payroll register was changed after the final approval.

Step 7: send the FPS by payment date and keep the acknowledgement

• Owner: the payroll lead sends it; the finance owner checks the HMRC account and the submission status.
• Input: the payment date, pay and deductions, year-to-date figures, new starter or leaver status, pension fields, and director or leave indicators for each paid person, where applicable.
• Deadline: normally sent on or before payday, even where the company pays HMRC quarterly. If payday falls on a weekend or bank holiday, it can be reported on the next banking day, but the FPS still carries the original usual payment date and uses late reporting reason G as HMRC directs. HMRC: FPS after payday
• Official evidence: the submission time, the payment date, the FPS acknowledgment, the original report generated by the software and any exception receipt. Reporting early to cover payroll staff holidays is possible, but reporting too early creates corrections when an employee leaves or a tax code changes. An early submission is not a reason to relax the document cut-off. HMRC: FPS reporting
• Stop condition: stop the next step and preserve the original facts when there is no successful acknowledgment, when the payroll run date was used instead of the payment date, when a paid person was omitted, or when the FPS went out before the two-person review finished. Repeated resubmission is not a way to try your luck.

Step 8: decide on the EPS, check the HMRC bill and pay it

• Owner: the payroll lead decides whether an EPS is needed; the finance owner checks the liability and the payment.
• Input: the PAYE, employee and employer NIC, student loan and other deductions from the FPS; statutory pay recovery, Employment Allowance, CIS, the Apprenticeship Levy, a tax month with no employee payments, or inactivity information.
• Deadline: where HMRC needs to apply a reduction, the EPS should be sent by the 19th of the following tax month. Where no employee was paid for a whole month, send an EPS rather than an FPS. HMRC: EPS An electronic PAYE bill payment normally has to arrive by the 22nd of the following month, while a non-electronic or cheque payment has to arrive by the 19th. An employer whose monthly payment is normally below £1,500 may be able to apply to pay quarterly, and where a due date falls on a weekend or bank holiday the official tool should be used to bring the receipt to the previous working day. HMRC: Basic PAYE Tools
• Official evidence: the EPS acknowledgment, the bill in the HMRC online account, the Accounts Office reference, the bank payment receipt, the receipt date and the reconciliation. The Employment Allowance is not an automatic deduction the moment employer NIC appears: a single director as the only employee above the secondary threshold, connected companies and multiple payrolls can restrict eligibility, and the claim has to be renewed each tax year. HMRC: Employment Allowance eligibility
• Stop condition: where the HMRC bill does not match the payroll liability, where an EPS reduction is missing, where quarterly eligibility is unconfirmed, where the payment reference or receipt date is unclear, or where the Employment Allowance is treated as a personal employee relief, stop allocating the cost first. Do not pay twice or write the difference off on your own authority.

Step 9: deliver the pension contributions and close the file

• Owner: the pension owner sends the provider file, the finance owner pays, and the payroll lead runs the three-way reconciliation.
• Input: the employee and employer contributions for the period, qualifying earnings, member changes, join, leave and opt-out events, and the provider's payment schedule.
• Deadline: work to the earlier of the scheme's and the provider's dates. Employee contributions deducted from pay under the rules are normally due by the 22nd of the following month for electronic payment and the 19th for non-electronic payment. Some schemes allow the first three months of contributions to be paid in one go in the fourth month, but the provider's rules have to be confirmed first; they cannot simply be assumed. TPR: making contributions to your pension scheme
• Official evidence: the provider's acceptance receipt, the payment receipt, the member list, records of rejected or resubmitted items, and the contribution reconciliation between the payroll register, the payslips and the FPS.
• Stop condition: mark the cycle as not closed when the provider file is rejected, when a member or an amount does not match, when an employee deduction has been taken but the scheme has not recorded it, or when the provider's deadline fell before the internal calendar without escalation. Correct it before closing the period.

Exception routing: stop first, correct next, pay last

Late FPS: work out the reason first, and do not pick a code that looks close

HMRC applies different reporting points and late reporting reasons to payments made on non-working days, to cases with no P45 where weekly pay is below £96 or the person worked less than a week, and to certain ad hoc items found after payment. A non-working-day case carries the original payment date and reason G; an ad hoc arrears payment normally goes into the next regular FPS or an additional FPS. An FPS that is late without a valid reason can trigger a warning or a penalty. HMRC: FPS after payday The control board should hold the timeline of facts, the real reason, the submission time and the acknowledgement, and it should not relabel "the software failed" or "the owner forgot" as G.

Wrong pay, wrong deduction or wrong payment date: correct the original facts instead of creating a second employee

Where a pay or deduction error is found in the current tax year, the year-to-date figure is normally updated on the next regular FPS, or an additional FPS is sent under HMRC's rules. A wrong payment date needs a corrective FPS using H to show that an earlier submission is being corrected. A wrong start or leaving date should first be fixed in the payroll records; do not create a duplicate new employment on the next FPS. Where the National Insurance category letter was wrong, follow HMRC's rules on zeroing the old category, resubmitting under the correct one, and refunding or collecting from the employee. HMRC: correcting your FPS or EPS Any such correction needs a complete chain: the original submission, the calculated difference, the employee refund or collection, and the new acknowledgement.

Leavers, final pay and P45s: keep the last working day and the final payment date apart

When an employee leaves, record the leaving date in the payroll record and report it on the appropriate FPS; the company must give the employee a P45. Final pay may include salary, untaken holiday, a bonus or statutory pay, and the tax and NIC treatment cannot be settled from a generic checklist. Where a compliant post-leaving payment arises after the P45 has been issued, HMRC has a specific path covering the original leaving date, the payment after leaving indicator, the 0T tax code and the rule that no second P45 is issued. HMRC: what to do when an employee leaves So where the leaving input is unconfirmed, where the P45 date contradicts the final pay logic, or where there is a termination award, continuing statutory pay or a director's departure, hand the case to a payroll or tax specialist first.

Pension opt-out: accept only a compliant notice, and never let the employer decide in the employee's place

An employee has to become an active member before a valid notice from the scheme can be handed in during the one-month opt-out period. Once a valid notice is received, stop further deductions, tell the scheme and refund on time; leaving membership outside that window is handled differently. An employer must not build "sign the opt-out on day one" into the process, and must not hint through a job offer, a bonus or the rota that leaving the scheme is better. TPR: opting out Where the notice is invalid, the date is unclear or the person is not yet an active member, stop the refund and the payroll change and verify with the scheme first.

Statutory pay and the EPS: pay correctly first, then claim the reduction

Statutory payments such as SMP, SPP, SAP, ShPP, SPBP and SNCP are calculated by payroll and recorded alongside wages. Any qualifying recovery, Employment Allowance or other reduction is notified to HMRC through the EPS. The EPS does not turn unpaid wages into a credit, and a small amount is not a reason to skip eligibility and calculation evidence. Where the eligibility, evidence, Northern Ireland rules or recovery percentage for a statutory payment are unclear, work through the current HMRC guidance and professional advice first and decide on the EPS fields afterwards. Do not send unreviewed numbers just to bring the bill down. HMRC: EPS

HMRC bill mismatch: rebuild the bridge from the payment date and tax month

When the HMRC bill does not match expectations, check the FPS payment date (not the submission date), the pay and deductions for the tax month, whether the EPS arrived by the 19th, new starters and leavers, the year-to-date figures and earlier payments. HMRC also notes that a wrong payment date, FPS or EPS entry, or paid amount will produce an incorrect bill and duplicate payroll records. Do not pay twice before the internal bridge is complete, and do not offset the difference silently in the next payroll. If it still cannot be explained, keep the acknowledgements and query HMRC or a qualified payroll adviser.

Annual control points: four exits beyond the monthly close

First, the last payroll of the tax year still sends a final FPS (or the applicable final EPS where nothing was paid), and the final submission should be confirmed in the software; the new tax year starts on 6 April, so tax codes and the software need updating. Second, employees still on payroll on 5 April should receive a P60 by 31 May. Third, expenses and benefits not handled through payrolling belong on the annual benefits path, where P11D/P11D(b) and Class 1A NIC are decided; do not fold benefits into ordinary pay and skip that routing. HMRC's order of annual tasks is the final payroll report, updating the new tax year's records, P60s, and expenses and benefits reporting by 6 July. HMRC: payroll annual reporting

The payroll and its audit trail have to answer at least four questions: who approved which input and when; which version of the tax code, NIC category and pay period the software calculated from; where the acknowledgements for the FPS/EPS, the HMRC payment and the pension provider payment are; and what was corrected later, why, and whether the employee received the refund or paid the shortfall. HMRC's Basic PAYE Tools guidance requires current payroll records and those of the previous three tax years to be kept, with a longer retention requirement applying to National Minimum Wage evidence. The company should keep the payroll register, change sources, approvals, payslips, FPS/EPS, payments, pension files and corrections in a searchable read-only archive rather than one bank screenshot. HMRC: Basic PAYE Tools

FAQ: the five things people ask most when running payroll

Is the close the same for weekly and monthly payroll?

The control logic is the same, but the frequency and the point at which it falls in the tax month differ. Whether you pay weekly, four-weekly or monthly, an FPS is due on or before each payment date; the internal cut-off is worked backwards from the data volume, approvals and bank arrangements. The HMRC PAYE bill, the EPS and pension contributions each have their own monthly or scheme dates, so running payroll weekly is not the same as paying HMRC weekly, and a month-end banking day is not a catch-all deadline.

How far in advance can an FPS be sent?

You can report early to cover holidays or staffing, but the payment date still carries the usual payday. If the facts change after submission, for example an employee leaves or a tax code is updated, a correction has to be sent. Complete the input freeze and the two-person review first and only then choose to report early, rather than using an early submission to paper over gross pay that is not yet settled.

Do you still send an FPS when no employee was paid?

Where no employee was paid for a full tax month, an EPS is normally used to tell HMRC rather than sending an empty FPS; any statutory pay recovery, Employment Allowance or other applicable item also goes through the EPS rules. If pay is suspended periodically, if only a director receives irregular payments, or if pay is about to restart, confirm the actual set-up of the PAYE scheme and get professional input first.

An employee says they do not want a pension. Can the first period be skipped?

A verbal request is not an opt-out notice, and an employee cannot be asked to sign an opt-out before automatic enrolment. Complete the assessment and automatic enrolment first under the age, earnings and scheme rules; only a valid notice submitted by an active member within the window leads to a refund and the subsequent contribution treatment. An employer must not make opting out a condition of hiring or pay.

Do Scottish or Welsh employees need a separate NIC calculation?

Usually not a separate NIC payroll. National Insurance is still calculated from the employee's category letter, pay and the applicable thresholds, while the S or C prefix on the HMRC tax code tells the software to apply the devolved Income Tax rates. Where an employee's residence, tax residency or code notice is unclear, do not edit the tax code by address; confirm with HMRC or a qualified tax specialist.

Next step: put the nine-step board into a real cycle

Pick an upcoming ordinary payday and build a control sample without sensitive data: the input cut-off, the change list, the gross pay register, the tax code and NIC category check, the pension assessment, the two-person approval, the FPS/EPS acknowledgements, the HMRC payment and the provider receipt. Once it has run, write the owner, evidence location and stop condition for each item into the company's own payroll policy. This control sample is an internal management tool, not an official form, and it does not replace the case-specific conclusions of the software, HMRC, The Pensions Regulator or a professional adviser.

If you are still at the stage of setting up a UK company or preparing employment documents, MANPRPOWER LIMITED can provide UK company registration coordination and document preparation support within its authorised scope, while partner agencies or qualified professionals handle the specific payroll, tax, pension, employment law, immigration and case-specific judgements. For director payroll, irregular payments, cross-border staff, agencies, benefits, termination awards or any special NIC or tax category, do not run a bulk payment from this article alone. Have the relevant specialist review it first, then decide whether it goes through the ordinary nine-step board.